Trade and foreign direct investment in the manufacturing sector

In recent years EU exports to Mercosur have been growing at a faster rate (an annual average higher than 13 percent from 1995 to 1998) than to any other external markets. Mercosur exports to the EU, however, increased by just 6 percent annually. Consequently, Mercosur countries have accumulated a large trade deficit with the EU (6.4 billion euros in 1998). In the manufacturing sector, EU exports to Mercosur deeply involved industries characterised by presence of small and medium enterprises (SME), which account for no less than 35% of European exports to the region. EU foreign direct investment (FDI) into Mercosur grew exponentially during the 1990s, from 597 million euros in 1993 to 6,684 million euros in 1997. As a matter of fact, up to now, capital inflows have been driven mainly by privatisation processes which have attracted many large multinationals in the infrastructure, telecommunication, energy and banking sectors. Time for a change seems to have come if one considers the privatisation processes are quickly running to their end and Mercosur members need to further develop the still young network of SME which only may assure a process of widespread industrialisation. Negotiations should accelerate the integration process above all in the traditional and technical progress diffusing sectors. In these sectors, EU counts the majority of its innovative SME, which do not only wish to export goods but also to create international joint-ventures capable of exploiting the many opportunities offered by the global economy